Wednesday, December 17, 2014

More Fun in Atlantic City

This has been a tough year for Atlantic City, New Jersey's gambling center. Four of its 12 casinos have closed. One, a two-year-old $2.4 billion casino/resort, is being sold out of bankruptcy for about $100 million, and its viability is questionable even at that price.

The latest casino whose survival is imperiled is the Trump Taj Mahal.

The Taj opened 24 years ago with 160,000 square feet of gambling space and more than 2,000 guest rooms, plus other amusements.

Donald Trump has been largely out of the picture since 2009, when the majority of the Taj stock was bought by a big global investment firm. All this year, the owners and debt holders have threatened repeatedly to close the place.

To nobody's surprise, the Taj Mahal is now the subject of a bankruptcy battle.

On one side is the union representing 1,000 of the 3,000 Taj Mahal employees. They want to keep their $10,000 health insurance policies, their pension holdings in a broke multi-employer fund and their casino-provided half-hour paid lunches.

Across the table is "activist investor" (and former "corporate raider") Carl Icahn, who over some years bought the majority of the Taj Mahal's senior secured debt at what now looks like the laughable price of more than 90 cents on the dollar. He wants not to have to write down his $286 million investment and, more, to take over the casino and make some money by reviving it.

This existential game of chicken is being played out against the forcible downsizing of Atlantic City's gambling space to accommodate a dwindling number of blackjack and slot-machine gamblers.

Bankruptcy Back and Forth
In September, the Taj owners threatened to close the casino on October 3 if the bankruptcy judge did not void the union contract.

In October, the casino limped along and Icahn revealed his strategy. He wanted to trade his debt for equity, to get the Taj property tax bill lowered by 80 percent and to get $25 million in state tax credits. Then Icahn decided he'd rather have $175 million in state development and urban revitalization grants. He said would spend $100 million upgrading the casino which, arguably, might make the Taj more attractive to gamblers and less likely to be the next domino to fall.

A November 13 closing date was bandied about, and the judge voided the union contract. The threatened closing date then was pushed to the end of the year.

Later in November, the union appealed the judge's cancellation of its contract. The New Jersey state senate president, himself an officer of the ironworker's union, told Icahn there would be no state grants until he made peace with the union.

The judge threatened to change the bankruptcy from a Chapter 11 reorganization to a Chapter 7 liquidation. The value of the property, if liquidated, would be very low because Atlantic City already has more casino space than it can support. Also, liquidation would wipe out 3,000 job.

This seemed to concentrate the opponents' minds. Now Icahn is talking about restoring some health benefits. The union may be receptive.

But the prospects for massive state aid seem dim. New Jersey is broke in almost every conceivable way, and if it commits money to salvage one casino in Atlantic City, it almost certainly will be petitioned for similar help by the city's other seven gambling meccas.

Other Jersey Gambling Plans
As I mentioned recently, many state leaders are pushing to legalize sports gambling in New Jersey. Presumably they believe this will "make the pie bigger," but this seems unlikely. Once such a decision is taken, Delaware and Pennsylvania could be expected also to legalize sports betting and collect their own slices of the hoped-for bigger pie.

Still, the prospect of gambling revenues beguiles politicians. Casinos have been proposed in two Northern New Jersey locations -- Jersey City and in the Meadowlands near MetLife Stadium.

And, just two weeks ago, the Essex County executive suggested a casino in Newark, which has an unemployment rate of almost 12 percent. He acknowledged, however, that he had received no expressions of interest from any private casino operators.